If i were to upgrade to a new rig that was at a decent price, id try for:
Intel i5 2500k
Radeon 6870
8 Gb DDR3
1 TB HDD
Full tower case with 2-3 120mm fans
650 Watt Corsair
Probably a gigabyte LGA 1155 mobo with support for DDR3 and SLI/crossfire.

Why a new Rig? What resolution are you gaming at? The only real problem with your system is the processor IMO. Check the motherboards support page for BIOS update that support newer processors, and get one of the nice ones that is compatible (preferably black edition). Then just grab a good CPU cooler and overclock the hell of out it. You'll be surprised how much better your gaming experience is at 3.5Ghz or higher than it is as 1.8Ghz.

Ugrading from that phenom cpu to the 2500k would be a great upgrade. If you could muster up enough cash maybe try to get a 6950 card, or wait for a midrange 7xxx series gfx card. In the meantime you could try overclocking that phenom a bit to get some further life out of it. But graphics cards aside, the 2500K is the chip to get for a gaming build hands down. If money is really tight like you seem to say, a bios update and a black edition chip would be great too and alot cheaper as CMMetphor says.

Ugrading from that phenom cpu to the 2500k would be a great upgrade. If you could muster up enough cash maybe try to get a 6950 card, or wait for a midrange 7xxx series gfx card. In the meantime you could try overclocking that phenom a bit to get some further life out of it. But graphics cards aside, the 2500K is the chip to get for a gaming build hands down.

Or, if you want to save money and not go the fanboi route, you may be able to drop a Ph2 X6 1090T/1055T in that motherboard and still be within 10% the performance of an i5 that uses the same video card (which can always upgrade as well, in the same motherboard) .... without having to change your whole dang computer to do it.

At that resolution a crazy video card upgrade wont really help that much. The processor should definitely be your focus. If you're that pressed for cash, then your first choice should be looking here on the forums for a Good quality used Heatsink/cooler thats in decent condition. Im sure if you can scrounge together 30-40 bucks it'll be enough for something decent. With that the temps will drop drastically on your current CPU, so you can overclock it more AND you'll be able to use the same cooler on whatever the next processor is (providing its compatible, socket-wise). How much money can you realistically put together to help your gaming experience?

Need to have a few questions answered now:
1- What is the exact model of the Gateway PC you're running right now?
2- What is the vertical clearance from the CPU socket, approximately? (Height between the CPU and the case's side panel)
3- Are you willing to buy use from trustworthy members here on HWC?

Need to have a few questions answered now:
1- What is the exact model of the Gateway PC you're running right now?
2- What is the vertical clearance from the CPU socket, approximately? (Height between the CPU and the case's side panel)
3- Are you willing to buy use from trustworthy members here on HWC?

1: DX-2400-09
2: roughly 6-7 inches
3:not exactly

Also, i really would need to stick to my budget of 200 at the very max

2- That should be plenty for a decent mini tower cooler (like a CM TX3) or a decent to high-end top-down cooler. We'll see how much money is left over after we determine what your motherboard can take, processor-wise.